Wading through Japan

When Pfizer and Mylan, two of the world’s biggest pharma companies join hands to market drugs in a country, there should be no guesses to its potential. The country in focus is Japan, the second largest market in the world after the US, hugely untapped by foreign pharma due to various factors. But with an increasing ageing population, numerous impending drug patent expiries, a broad array of government initiatives aimed at reducing healthcare expenditures, and a rising demand for high quality generics it is not only becoming attractive for big pharma plagued by static sales in the US and European price cuts, but others too. The recent move by India to ask Japan to remove non-tariff barriers, might be the trigger for Indian pharma companies to increase their share in this growing market. While only a few have managed a footprint, we take a look at what makes the country attractive yet unexplored and the potential for India.

A growing generics market

The Japanese pharmaceutical market was estimated to be worth ~JPY 9690 billion ($125 billion) in 2011. Growing at a CAGR (2010-2015) of ~ 3.5 per cent, it is expected to reach JPY 12220 billion ($145.5 billion) by 2015. The growth rate is slightly lower than those of the previous five years reflecting biennial price cuts scheduled for 2012, 2014, and 2016. The market consists of three broad segments –generics, non-generics (all patent protected and non-protected drugs excluding generics) and other products (OTC and other unclassified products). For the year 2011, the generics market stood at ~ JPY 520 billion ($6.7 billion), non-generics at ~JPY 7430 billion ($95 billion) and the other products segment at ~JPY 1740 billion ($22.4 billion). The generics segment is the highest growing of all with a reported CAGR of ~14 per cent (2010-2015).

According to new calculations based on IMS data released by the Japan Generic Medicines Association (JGMA), generic drugs sales accounted for fewer than 10 per cent of pharma sales by value and nearly a quarter of pharma sales by volume in 2011 and are expected to reach a figure of 12.8 per cent by 2015. This was up from 8.5 per cent (FY 2010) and just 5.7 per cent five years ago. However, Japan’s share of global pharma spending is expected to remain at roughly 10 per cent through 2016. Drug stores, hospitals and clinics hold the largest demand for pharma with prescription drugs accounting for the largest share(~90 per cent). This market grew by 7 per cent to JPY 9,481.6 billion ($120.5 billion) in 2011 despite the March earthquake, tsunami and nuclear crisis, driven in large part by increasing sales in the oncology, diabetes, and vaccines sectors.

The Japanese market is not nearly as fragmented as the Indian market. Domestic pharma companies such as Takeda, Daiichi Sankyo, Mitsubishi Tanabe and Astellas hold a majority of market share(~26 per cent) with only four foreign companies ranking in the top ten (Pfizer, Roche (Chugai), Novartis and Merck). Most domestic companies derive close to 40 per cent of their revenues from exports. Takeda is the largest Japanese pharma manufacturer in terms of sales. At 5.6 per cent market share, Pfizer comes a close second with Roche and Novartis tied in fifth place with 4.4 per cent and Merck at ninth.

As far as the therapeutic areas are concerned, oncology, CNS and immunology are some of the areas targeted for R&D by domestic firms. While the country has comparatively low rates of breast, ovarian, lung and colon cancers, their prevalence rates are rising rapidly, while rates for other cancers (such as gastric cancer) are already high by international standards. The country is the third largest market for chronic myeloid leukaemia (CML).

“Revising the generic dispensing fees for the benefit of pharmacists, lowering of generic price ceilings and a new rule that requires new generics to be made and registered in all strengths of the originator products, are some of new initiatives that might help encourage foreign companies.” Hitesh Gajaria, Partner, KPMG

“The prevalence of heart disease in Japan in both men and women is among the lowest world-wide due to low obesity levels. It also has low incidence of Alzheimer’s disease, despite its ageing population, although dementia levels are on a par with equivalent populations. Chronic Hepatitis C virus (HCV) infection levels are high. The country has one of the highest male smoking rates(~25 per cent). Drugs in areas such as cardio-vascular, oncology, gastroenteric, neurological and anti-infectives have the maximum therapeutic potential in Japan,” says Hitesh Gajaria, Partner KPMG.

Challenges and opportunities

Despite being the second largest pharma market and the sixth largest generic retail prescription market worldwide, generic penetration (by volume) in Japan is still to rise beyond 23 per cent(~70 per cent in the US). One reason has been the country’s resistance to generics medicines owing to concern over safety and quality as compared to their branded counterparts.

“Japanese consumers are traditionally wary of foreign brands. Some of these concerns about the quality of generics have legitimate origin, as only recently have active pharma ingredients manufactured outside Japan been subject to on-site plant inspections by Japanese regulators.” Michael Glessner Pharmaceutical Research Analyst, Thomson Reuters

Says, Michael Glessner, Pharmaceutical Research Analyst, Thomson Reuters, “Japanese consumers are traditionally wary of foreign brands. Some of these concerns about the quality of generics have legitimate origin, as only recently have active pharma ingredients manufactured outside Japan been subject to on-site plant inspections by Japanese regulators.”

Drugs are prescribed by physicians, who have discouraged long-term availability of generic medicines with innovator companies wielding more power and retaining significant market share even after losing patent protection. Generic manufacturers thus are left to withdraw older products from the market due to reduced sales or lower reimbursement fees. Pharmacies too opt to stock the branded original instead of stocking multiple generic versions of a drug. New drugs currently reach Japan almost five years after their launch in other markets. Burdensome clinical data requirements and lengthy approval times further add to it.

“Pharmexcil is negotiating a MoU with Japan’s pharma producers/ generic association for exchange of information, which could help our exporters to prepare and approach their market in a well planned manner.” P V Appaji, Director General, Pharmexcil

“There is no direct access to pharma and Medical Devices Agency (PMDA) and should be routed through in country caretaker. This leads to delay in getting regulatory information. Periodic GMP manual inspections of voluminous data is also arduous,” adds PV Appaji, DG, Pharmexcil.

However, for all the glitches, there remain windows of opportunity, for those seeking to tap them. With the Japanese government having set an ambitious target of increasing the generics share to 30 per cent of sales by volume by the end of 2012, a lot of reforms are underway. “Revising the generic dispensing fees for the benefit of pharmacists, lowering of generic price ceilings and a new rule that requires new generics to be made and registered in all strengths of the originator products, are some of new initiatives that might help encourage foreign companies,” opines Gajaria. The Japanese Government launched the public incentive programme in April this year as a part of which municipal governments, in their capacity as insurers, now actively promote the use of generics among their members. The Japanese Ministry of Health, Labour and Welfare (MHLW) is increasingly accepting non-Japanese Asian data as part of the regulatory approval process. To encourage pharmacists to prescribe generics, they are paid JPY40 ($ 0.45) per prescription if generic drugs account for at least 30 per cent of dispensed medicines over a three-month period. Prescription forms now contain a box where a physician must sign if he/she does not consent to generic substitution. The country is also trying to adopt a more liberal approach to the acceptance of foreign clinical data. The future thus looks bright for generics in Japan.

The road ahead

Although Indian companies have been able to ride the generic bandwagon in the US, the Japanese market has been a tough nut to crack. “As of March 2012, Indian companies have filed 112 Japanese DMFs and have launched over 650 products in Japan,” states Glessner.

Ranbaxy (now wholly-owned by Daiichi Sankyo) was one of the first companies to enter Japan in 2002 by acquiring 50 per cent stake in Nihon Pharmaceutical Industry (a subsidiary of Nippon Chemifar). After this relationship ended in 2009, the company today is back and much better armed, thanks to its Japanese parent—Daiichi-Sankyo. Ranbaxy and Daiichi in 2010 set up Daiichi Sankyo Espha, to sell generics as well as long-listing drugs (off-patent branded drugs) in Japan.

In 2011, Dr Reddy’s Laboratories announced its entry into Japan by signing a joint venture with Fujifilm Corporation banking on its expertise in cost competitive production technologies for active pharmaceutical ingredients and formulations and Fujjfilm’s advanced quality control technologies to deliver high quality generic drugs.

Zydus Cadila has been present in the Japanese market since 2007 after it acquired Nippon Universal Pharma in Japan. Though only one per cent of its revenues comes from Japan, the company is bullish on the country and has filed four new products and received three approvals in the first quarter of 2012. The above examples clearly indicate that partnering with a local company is a key to success in the Japanese market, since they have sufficient know-how and expertise of the regulatory hurdles.

The most succesful example of the same is Lupin. With 12 per cent of its revenues coming from Japan, Lupin’s alliance with Kyowa, a 50-year-old Japanese drug company (a 100 per cent subsidiary now) in 2007, is a point in case where Lupin develops and manufactures the drugs and Kyowa conducts regulatory testing, obtains approvals and markets the drugs in Japan.

“Having gained expertise in the market, regulatory is no longer an issue for us. Japan contributes $250million to our revenues currently and we see the figure increasing to $650 million by March 2017 alongwith filing 8-10 new products every year. We along with our subsidiary Kyowa Pharma, aim to be in the top four in the next few years and have put in the requisite sales force to match our operations.” Vinod Dhawan President, AAMLA & Business Development (Lupin)

“Having gained expertise in the market, regulatory is no longer an issue for us. Japan contributes $250 million to our revenues currently and we see the figure increasing to $650 million by March 2017 alongwith filing 8-10 new products every year. We along with our subsidiary Kyowa Pharma, aim to be in the top four in the next few years and have put in the requisite sales force to match our operations,” informs Vinod Dhawan, Group President, AsiaPacific, Africa, Middle East, Latin America (AAMLA) and business development, Lupin. This strategy would come in handy for Indian companies looking for strategic partners in Japan.

The company recently partnered with l’rom, which has significant presence in hospitals under the DPC (Diagnosis Procedure Combination) scheme that extensively use generics to cut costs.

However, Indian pharma needs to rise upto the challenge. Informs Gajaria, “Japanese imports of India’s drugs, pharma and fine chemicals have been the lowest so far ($ 65 million)”. The grass does look greener since its not only the Japanese government which is taking steps to remove hurdles for foreign firms penetrating the market but the Indian govenemnt has also upped the ante. The recent request to remove numerous non-tariff barriers like tedious registration process and language that have so far been a deterrent for the domestic pharma industry to ramp up trade with Japan, is a step in the right direction. This would help both countries take full advantage of the Comprehensive Economic Partnership Agreement (CEPA) signed in mid 2011 as a part of which the Japanese government would accord no less favourable treatment to the applications of Indian companies than it accords to the applications of its own persons for drug registration. Although drug exports to Japan have increased, India only accounts a tiny share of less less than 1 per cent of total Japanese pharma market. We hope this figure would soon reflect the potential that the Japanese pharma market holds for Indian pharma.

shalini [email protected]